29 Cal.2d 561, 17299, Severance v. Knight-Counihan Co.

Docket Nº:17299
Citation:29 Cal.2d 561, 177 P.2d 4
Opinion Judge:[10] Traynor
Party Name:Severance v. Knight-Counihan Co.
Attorney:[7] J. W. Jackson for Appellant. [8] Jackson Maddux and Charles F. Jonas for Respondent.
Case Date:January 28, 1947
Court:Supreme Court of California

Page 561

29 Cal.2d 561

177 P.2d 4



KNIGHT-COUNIHAN COMPANY (a Corporation), Respondent.

S. F. No. 17299.

Supreme Court of California

Jan. 28, 1947

In Bank.

Page 562


J. W. Jackson for Appellant. Jackson Maddux and Charles F. Jonas for Respondent


[177 P.2d 5] TRAYNOR, J.

Defendant operates a printing plant in San Francisco. Plaintiff was employed by defendant as a salesman of its tariff business from May, 1936, to January, 1943. For over twenty years before his employment with defendant he conducted a printing business of his own. Defendant had no tariff business when plaintiff entered its employ, and plaintiff built up defendant's tariff business during the period of his employment to a volume of approximately $50,000 a year. When plaintiff resigned his position with defendant, he notified

Page 563

defendant of his decision to exercise an option to purchase at their metal value all tariff plates used in defendant's business. The parties agree that at this time the metal value of the plates was $8,000 and their value as tariff plates $31,450. Defendant refused to sell the plates, and plaintiff brought this action to recover them or $31,450, their value as tariff plates, and damages. The trial court entered judgment for defendant. It found that the option agreement "was collusive and was drawn and signed by plaintiff and defendant for the purpose and with the intent to defraud creditors of defendant; that said agreement provides for a wholly inadequate and unfair consideration to be paid by plaintiff for said property; that said agreement was and is contrary to good morals and public policy, illegal, void and unenforceable." plaintiff appeals.

Plaintiff contends that the judgment of the trial court is not supported by the evidence. Defendant contends that there was no contract, since the written agreement on which plaintiff relies was never delivered to him. Defendant also contends that even if there was a contract, it was unenforceable on the grounds that it was to become operative only upon the condition that defendant's creditors took action to take over defendant's business or to force defendant into liquidation; that even if that condition materialized, plaintiff was to acquire the plates only as a trustee; and that the sole purpose of the agreement was to withhold a valuable asset of defendant's from the creditors and to place in its stead a claim against plaintiff who had no funds to pay it. The trial court made no finding as to whether a signed copy of the agreement was delivered to plaintiff within the meaning of section 1626 of the Civil Code. It is immaterial, however, whether the written agreement was delivered. If it was not, there was no contract. If it was, the evidence supports the judgment of the trial court that the contract was unenforceable. The fact that the contract depended upon a condition precedent could be shown by parol evidence, since the contract did not include express provisions inconsistent with the condition. (P. A. Smith Co. v. Muller, 201 Cal. 219, 222 ; Verzan v. McGregor, 23 Cal. 339, 343; Gleeson v. Dunn, 113 Cal.App. 347, 350 ; Cooper v. Cooper, 3 Cal.App.2d 154, 158 ; see Restatement, Contracts, section 241; 3 Williston, Contracts, rev. ed., section 634 and cases there cited; 9 Wigmore, Evidence, 3d ed., section 2410; [177 P.2d 6] Corbin, Conditional Delivery of Written Contracts, 36 Yale L.J. 443.)

Page 564

The agreement on which the action is based reads as follows:

"Agreement. Now this agreement made and entered into this 16th day of February, 1938, by and between ALFRED D. SEVERANCE, hereinafter called first party, and KNIGHT-COUNIHAN COMPANY, a corporation, hereinafter called second party.

"WHEREAS, first party is now employed by second party, and desires to continue in the employ of second party.

"WHEREAS, second party is engaged in a general printing business and desires the services of first party.

"NOW, THEREFORE, in consideration of the aforesaid, and the mutual covenants and conditions to be performed by the parties hereto, they agree as follows:

"That as part of the consideration for the services rendered and to be rendered by first party to second party, and in addition to the salary received, and to be paid first party by second party, it is hereby understood and agreed that first party shall have the option and right to purchase, as hereinafter provided, all of the tariff pages set up and/or standing, whether completed or not, and used, or had been used, or to be used in connection with the business of the second party.

"That said option and right to purchase shall, and may be exercised within thirty days after the termination of first party's employment with second party for any reason whatever, or said option and right to purchase shall, or may be exercised within thirty days after written notice by second party to first party that there has been a substantial change in the management of second party, or that the business of second party has been consolidated with, or sold, or assigned to another person, firm, copartnership, or corporation, or second party has, or is about to liquidate its business, and first party's option and right to purchase may be exercised by him upon the happening of any of the events mentioned aforesaid, even though second party fails to give such written notice.

"First party shall at the time of the exercise of said option and right to purchase, give second party written notice thereof and shall have sixty days thereafter within which to pay second party as and for the full purchase price of said tariff pages, which shall be the then prevailing market price of all the metal contained in said tariff pages.

"That second party shall not have the right, and hereby agrees not to sell or assign in any manner whatever said tariff pages, or the use thereof to any person, firm, copartnership,

Page 565

or corporation without the written consent of first party during the term hereof.

"This agreement shall be binding upon the successors and assigns of second party and terminate at the death of the first party."

The evidence showed without conflict that when the agreement was signed, defendant was in an unsound financial condition and that the parties feared that defendant's creditors would either take over the business or force defendant into liquidation. The tariff business was a valuable part of defendant's printing enterprise and could be "saved" from the creditors if a way were found to withhold the tariff plates. According to plaintiff's testimony, defendant agreed to give him an opportunity to obtain its whole tariff business by paying the metal value of the plates at any time he left defendant's employ, defendant's management changed, or defendant "went into insolvency." Plaintiff had not bound himself to stay in defendant's employ for a certain term and could thus acquire defendant's tariff business at any time for a price far below its true value. Even without leaving defendant's employ he could acquire defendant's tariff business if there was any substantial change in defendant's management. According to the testimony of defendant's president, Mr. Counihan, there was no intention to enable plaintiff to obtain for himself the whole of defendant's tariff business by paying the metal value of the plates. The agreement with plaintiff was made merely to enable defendant or its directors in cooperation with [177 P.2d 7] plaintiff to continue the tariff business, if defendant's creditors took action against it that prevented it from continuing its business. In that event the plates were to be vested in plaintiff as trustee for defendant or for a group of individuals consisting of defendant's directors and plaintiff; the purchase price for the plates was to be paid, not by plaintiff, who did not have sufficient funds, but by Counihan. Counihan testified: "I told Mr. Severance that the creditors were hounding us, and I felt possibly that the creditors might take over the company, and figured that if they did, I would like to keep the company continuing, and possibly that we could save the tariff business by some method whereby I could let him have the tariff pages for the price of the metal, and continue the company in existence after the creditors foreclosed on us. ... The story is that we were attempting to save

Page 566

the tariff plates to continue the business; so the contract was for the price of the metal, rather than let the junkman have it; and continue the business and pay off the creditors with the same value in the metal as the junkman would have paid. The metal was not for him at all, it was for the little company to continue. ... Q. Mr. Severance was to get the metal? A. No. Mr. Severance was to get the metal for us at the price--the tariff pages at the price of the metal, so we could start in business again, if we were liquidated. Q. Was there anything in writing that you obtained from Mr. Severance to protect yourself in that respect? A. No. Q. Was there any understanding as to when you were to deliver the agreements and to whom? A. I trusted Mr. Severance like my brother. I didn't need any particular agreement outside of that. That was all. We were in unison. We were going to be closed up, and this would let us get the tariff pages and start over again. ... I was the one that was going to put up the money. Mr. Severance didn't have any money to buy it. I was the one that proposed to raise the money. ... Q. And if you wanted someone else to buy it they could buy it? A. I didn't want that, I wanted Mr. Severance to remain in the company with the other boys and continue on." There was a conflict in the evidence, which remained unresolved by the trial court...

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